Wall, N.J. 11/2/2007   -   Yes, we surpassed $100 bbl for gasoline this morning. More on what that means in a moment.

   I have used a dateline today because I have been accused of being out of touch with the nation’s gasoline trends. Wall, N.J. is one of the southernmost “bedroom communities” of Wall Street, and I’ll have more to say about the latter’s impact on oil prices a few paragraphs from now. More importantly, retail gasoline prices here are still in the $2.60’s, well below what many of you are seeing in the other 49 states.

   Yesterday, an AP story quoted yours truly as predicting that we probably wouldn’t see gasoline prices hit $3.00 gal again in 2007.  I was speaking of the national average, which today hit $2.942 gal, up 16cts gal in the last month and nearly 74cts gal above last year. There are indeed 14 states where gasoline fetches more than $3.00 gal on average, and I am fully aware of those through the daily database we manage for AAA (www.fuelgaugereport.com).

  The reason prices are so cheap here in Wall is that New York Harbor (which actually is mostly represented by real estate that lies in N.J.) is the target point for foreign gasoline. U.S. retail gasoline prices pale in comparison to the $4-$8 gal values seen in other developed countries that embrace mimes, cigarette holders, berets, and nihilist clothing trends. But the U.S. has the highest wholesale prices among industrialized countries in the world.

   A second reason for my low local prices is that New Jersey has cheap state and local taxes for gasoline.

   If at any moment while reading this, you feel jealous about the cheap gas available in New Jersey, I might remind you that we have the highest property taxes, state income taxes, and various sales and vice taxes in the country. We get a break on gasoline, but trust me; we pay through the nose on all other levies. Other states that claim to pay-through-the-nose, but the N.J. nose makes Cyrano look like Shirley Temple.

Some numbers and second thoughts

    As I write this, gasoline futures are up more than 5cts gal to $2.40 gal. That is the highest number since the May petronoia rally.  Journalists, take out your calculators. When you multiply 42 gallons times the current price of $2.40 gal, you now have $100.80 bbl gasoline!   We’ve been there a number of times before - - in September 2005; August 2006; and in May 2007; but we’ve never visited these heights in November. The time we have spent at $100 bbl or more through the years for wholesale gasoline can be measured in weeks.

   If today’s midday increases are sustained or bettered, I will have to utter a major mea culpa next week. The average nationwide retail price will indeed hit $3.00 gal and I’ll be among the many veteran analysts who underestimated the market’s capacity for excess. I still don’t believe we will spend much time at these lofty levels, and that the trend will change in the second half of November.

Rocky Mountain High

   I promise this is the last baseball metaphor that I’ll lean on in 2007.

   November is often a quiet month, and has traditionally been a weak month for oil prices. This year may be different.

   It’s not that the fundamentals have shifted. Even those who argue that underlying fundamentals have been bullish cannot defend the $27 bbl August-to-November price increase.  Clearly, the market reflects much more than the simple reality of what refineries are buying and what OPEC and non-OPEC countries are selling.

   One veteran analyst compared the Autumn WTI market to major league baseball’s Colorado Rockies. That team defied the odds, winning twenty one of twenty two games in order to represent the National League in the World Series. Strong fundamental performances by some of the Rockies’ players were clearly a factor in the rise. But much of the run had more to do with luck, scheduling, random events, and pure momentum. In the end, the Rockies were done in by the fundamentals that had been shunted aside when they won 95% of their games in the last month.

   For a statistical parallel, take a look at sentiment figures for the oil trading community. Bullish sentiment can run at 65 percent or higher for weeks or even months at a time. Market sentiment can even go on a multiweek run where bullish sentiment might exceed 75% or even 80%. It’s a bit like hitting .450 in baseball.

   Bullish sentiment as measured by California based Market Vane (www.marketvane.com) hit 92% last week, the highest level since WTI futures were launched in 1983.  The number represented the futures’ equivalent of a baseball batter on a .750 tear. One wouldn’t want to bet against the prospects of a stellar performance over the near term, but a longer view suggests a sharp revision lower.

   Several top analysts don’t rule out WTI having “a cup of coffee” at $100 bbl or higher. Plenty of fireworks could be witnessed in the wake of easier money (thanks to the October 31 Fed rate cut) and there is an OPEC meeting just one day after the November 16 expiration for December WTI contracts. But most observers would use the term “last hurrah” or “blowout rally” for this move. It has more to do with complicated financial company exposure to options, and much less to do with U.S. or even global supply and demand.

   Even Goldman Sachs, which described oil in September as being in the midst of a “bull bull market”, urged caution last week, telling customers that it might be an appropriate time to take profits. Their more conservative outlook rendered damage that lasted about a day.

   In the meantime, marketers, end-users, and to some extent refineries, are the casualties of this incredible rally. The participation from the financial segment in crude is many times what it is in gasoline and heating oil, so the bull run has disproportionately impacted crude.

   And like other price spikes before, the market takes no prisoners. The typical gasoline dealer is barely breaking even, or is selling gasoline at a loss at hundreds of locations. Refining margins for gasoline were at numbers reminiscent of 2002, the last poor extended period for processing in this century.

Diesel Hits New Record High At The Pump

   Until yesterday, Americans had yet to see all time record high prices at the pump. But November has ushered in a new high water mark for diesel prices. The average price for retail diesel hit $3.266 gal today, easily breaking the mark established yesterday that topped the $3.25 gal record previously established in the aftermath of Hurricane Rita in October 2005.

   OPIS retail data compiled for AAA notes that the average of $3.266 gal reflects a wide range among states, with continental U.S. numbers varying from Oklahoma’s $3.07 gal low to a high of $3.71 gal in the state of Washington (See www.fuelgaugereport.com for details on all states and metro areas). The Washington number is up a whopping 97cts gal from the same day last year, while the national average is up 65cts gal on the year, and 14cts gal in the last month.